2007 (8) TMI 440 - SC - VAT and Sales Tax

Whether on the said facts the department was right in denying the benefit of section 4B of the Act to the assessee? Held that - State appeal dismissed. The High Court was right in setting aside the above show cause notice dated May 9, 2001 issued by the A.O. (issuing authority). The withdrawal of recognition certificate was erroneous as it was contrary to the definition of the word sale in section 2(h) of the Act which had to be read with section 4B(2) of the Act. Therefore, the aforestated two circulars dated January 17, 2001 and February 23, 2001 issued by the Commissioner, Trade Tax, U.P., cannot constitute the basis for issuing the impugned show cause notice dated May 9, 2001.

Issues Involved:
1. Validity of the recognition certificate under section 4B of the U.P. Trade Tax Act, 1948.
2. Applicability of concessional tax rates on raw materials used in the construction of roads.
3. Legality of the circulars dated January 17, 2001, and February 23, 2001, issued by the Commissioner, Trade Tax, U.P.
4. Validity of the show cause notice dated May 9, 2001.

Issue-wise Detailed Analysis:

1. Validity of the Recognition Certificate under Section 4B of the U.P. Trade Tax Act, 1948:
The assessee, M/s. P.N.C. Construction Co. Ltd., sought a recognition certificate under section 4B of the Act for purchasing raw materials at a concessional rate for manufacturing hot mix used in road construction. The Trade Tax Officer initially denied the certificate, but the Trade Tax Tribunal later granted it, recognizing hot mix as a manufactured product. This certificate was subsequently revoked based on circulars issued by the Commissioner, Trade Tax, U.P., leading to the issuance of a show cause notice.

2. Applicability of Concessional Tax Rates on Raw Materials Used in the Construction of Roads:
The core contention was whether raw materials like cement, sand, bitumen, etc., used in manufacturing hot mix for road construction, qualify for concessional tax rates under section 4B. The High Court and the Supreme Court found that the raw materials used in hot mix manufacturing should benefit from concessional rates, as hot mix is a notified item under the relevant notifications. The court emphasized the concept of "value addition" post the Forty-sixth Amendment to the Constitution, which allows the State to levy sales tax on goods involved in works contracts.

3. Legality of the Circulars Dated January 17, 2001, and February 23, 2001, Issued by the Commissioner, Trade Tax, U.P.:
The circulars stated that raw materials used in road construction could not be purchased against form No. III-B. The High Court and the Supreme Court found these circulars to be a colorable exercise of power intended to circumvent the Tribunal's decision favoring the assessee. The court held that these circulars could not form the basis for revoking the recognition certificate or issuing the show cause notice.

4. Validity of the Show Cause Notice Dated May 9, 2001:
The show cause notice was issued based on the aforementioned circulars, questioning the validity of the recognition certificate. The High Court and the Supreme Court concluded that the notice was unjustified, as it relied on the flawed circulars and did not allege any violation of the recognition certificate's terms. The court held that the notice was issued to undermine the Tribunal's decision and was, therefore, liable to be set aside.

Conclusion:
The Supreme Court upheld the High Court's decision, setting aside the show cause notice dated May 9, 2001, and invalidating the circulars dated January 17, 2001, and February 23, 2001. The court affirmed that the assessee was entitled to the concessional tax rates for raw materials used in manufacturing hot mix for road construction, as per section 4B of the U.P. Trade Tax Act, 1948. The civil appeals filed by the State were dismissed with no order as to costs.

← Previous Next →